ECB’s Lagarde orders oil and gas price analysis ahead of September rate decision

Christine Lagarde has directed staff to model out oil and gas price scenarios ahead of the central bank’s next major policy meeting, a signal that energy markets are sitting at the center of Europe’s inflation story right now. Three roads, one destination: price stability The ECB’s internal work covers three distinct scenarios for energy prices: baseline, adverse, and severe. Each reflects a different world, largely shaped by what happens in and around the Strait of Hormuz, the narrow chokepoint through which a substantial share of global oil passes. In the adverse scenario, euro area inflation could climb to somewhere between 3.5% and 4.4%. That would represent a significant problem for a central bank that spent years trying to get inflation up to its 2% target and then spent more years trying to wrestle it back down. Lagarde confirmed that the ECB raised interest rates by 25 basis points in June, a move directly informed by this kind of energy price analysis amid ongoing unrest in the region. Why energy markets are driving European monetary policy Oil prices showed a slight retreat in mid-July, which would normally offer some relief. But the ECB is not simply tracking today’s pri...